Tuttle Capital's Bearish Bet Against Regional Banks

Tuttle Capital's Bearish Bet Against Regional Banks

Tuttle’s SKRE doubles down on the troubles facing regional banks.

Jeff_Benjamin
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Wealth Management Editor
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Reviewed by: etf.com Staff
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Edited by: James Rubin


 

With regional banks looking uniquely vulnerable to the troubled commercial real estate market, at least one ETF issuer is celebrating the trend with a leveraged downside bet on the banking subcategory.

“I’ve been waiting for this since January; there are a lot of reasons to be bearish on regional banks,” said Matthew Tuttle, founder of Tuttle Capital Management in Greenwich, Conn.

He introduced the Tuttle Capital Daily 2X Inverse Regional Banks ETF (SKRE) on Jan. 3 in response to the challenges he noticed in regional banks late last year. In an ETF marketplace loaded with all manner of investing and trading strategies, Tuttle couldn’t find an ETF that would let him bet against regional banks.

“I was buying puts on regional banks and I road some of the banks all the way down, and I couldn’t understand why there wasn’t an inverse regional banks ETF,” he said.

SKRE is an actively managed strategy that uses swap agreements to offer two times daily inverse exposure to the SPDR S&P Regional Banking ETF (KRE).

KRE is down 9.2% from the start of the year, which compares to a 17% gain for SKRE.

As a leveraged strategy that resets daily, SKRE is designed as a trading vehicle and not recommended for buy-and-hold investors, which is illustrated by its performance since inception. The share price, currently hovering about $28, has reached that level in early February and mid-March. But the price also saw troughs in the $23 range in late January and mid-May.

Shorting Regional Banks

Tuttle cites the regional banking business model as being particularly vulnerable in the current market.

“If I want to take my money out of a regional bank and send it to JPMorgan, I can do it in a matter of seconds,” he said.

Beyond the fact that regional banks are “not too big to fail,” Tuttle said that the smaller banks are disproportionately exposed to commercial real estate and being hurt by the Fed’s current interest rate policy and hold portfolios loaded with duration risk.

According to a Bloomberg report on Tuesday, Pacific Investment Management Co. called regional banks particularly vulnerable due to a “very high” concentration of troubled real estate loans in their portfolios.

Jeff Benjamin is the wealth management editor at etf.com, responsible for coverage related to the financial planning industry. This includes writing, hosting podcasts, webinars, video interviews and presenting at in-person events.


Jeff is a veteran journalist with more than 30 years’ experience covering the financial markets. He has won more than two dozen national and regional awards for his reporting. He most recently worked as a senior columnist at InvestmentNews where he wrote about investment products and strategies, as well as the broader financial planning industry. Prior to that, Jeff worked as an analyst at Cerulli Associates where he researched and wrote reports on the alternative investments industry. Jeff also worked as a money management reporter at Dow Jones Newswires, where he covered the mutual fund industry.


Based in North Carolina, Jeff is a former Marine and has a bachelor’s degree in journalism from Central Michigan University.